House Resources Subcommittee on Energy
and Mineral Resources
Hearing on the availability of bonds to meet federal requirements for mining,
oil and gas projects
July 23, 2002

The Bottom Line
On July 23rd, the House
Resources Subcommittee on Energy and Mineral Resources held a hearing on
the availability of bonds to meet federal requirements for mining, oil and gas
projects. The federal government requires adequate financial guarantees, often
in the form of bonds, from mining and oil companies operating on federal lands.
The bonds, issued by the surety bond industry, ensure that the obligations of
mining and oil companies for post-production site cleanup and reclamation of
federal lands are met. Witnesses testified that the surety bond industry has
recently deteriorated due to increasing financial risk caused by long-term operation
site uncertainty. The resulting paucity of surety bonds has led to the sinking
of mining industry cash into the financial guarantee requirements, resulting
in inefficient use of capital and mining industry decline. Chairwoman Barbara
Cubin (R-WY) warned that the consequences of this inefficiency on domestic energy
production are severe. An official from the Land and Minerals Management office
at the Department of the Interior (DOI) noted
that the agency has convened a Bonding Task Force to address the problem.

Members Present

Barbara Cubin (R-WY) - Chairwoman

Ron Kind (D-WI) - Ranking Member

Jay Inslee (D-WA)

Ed Markey (D-MA)

Hearing summary
Chairwoman Barbara Cubin (R-WY) opened the hearing with a summary of the reclamation
guarantee process that mining and oil companies must complete before operating
on federal land leases. The companies, she said, must provide financial guarantees
that ensure that money will be available for the reclamation and cleanup of
abandoned sites. The most common guarantees come in the form of surety bonds
in which surety companies guarantee the fulfillment of a specified obligation
(reclamation, cleanup) by the mining and oil companies. In the early 1990's,
the surety industry was flourishing, but recent instability in the industry
has resulted in a lack of available bonds for the mining and oil industries.
To meet the guarantee requirements, the companies have been forced to provide
money from their own money caches. This inefficient use of capital is available
only to the largest companies, Cubin noted, and will eventually result in diminishing
domestic energy supplies.

Rep. Ron Kind (D-WI) followed Cubin by noting that site cleanup and reclamation
should be a "cost of business." He then turned to the Bonding Task
Force convened by Secretary of the Interior Gale Norton, scolding it for meeting
with only the mining and oil industry sectors. He warned that other stakeholders,
like state and local governments, must be included in the discussions.

Rep. Ed Markey (D-MA) concurred with Kind by saying that site cleanup and reclamation
should be a cost of business. He noted the unfortunate timing of this hearing
in light of the Enron and WorldCom scandals. He warned that corporations are
not always responsible and should not be let off the hook on reclamation duties.

The lone witness on the first panel was Tom Fulton, Deputy Assistant Secretary
of Land and Minerals Management at the Department of the Interior (DOI).
He testified
that DOI requires guarantee bonds before it gives licenses or permits. He acknowledged
the recent surety industry downfall and noted that the Bonding Task Force was
designed to address the issue. As chairman of the task force, he assured the
committee that all stakeholders will be consulted.

In the question and answer period following Fulton's testimony, Cubin questioned
him on the severity and extensiveness of the bonding problem. Fulton responded
by noting that most federal laws require reclamation guarantees, and the problem
is large. He stated that bonding details, however, are hard to generalize as
they vary with the situation and government agency that has jurisdiction.

Kind returned to the task force issue. He repeated his assertion that all
stakeholders must be included, and then asked with whom the task force has met
and when it was formed. Fulton could not recall the inception date for the task
force, but indicated that it has met with only the mining and surety industries
so far. Kind followed by asking if the bonding requirements will be lowered
as a solution to the problem. Fulton was unclear about the possibility of lowering
requirements, but did indicate that DOI did not want to use taxpayers' money
for cleanup and reclamation.

The second panel witnesses included Lynn Schubert, President of the Surety
Association of America; Steve Borell, Executive Director for the Alaska
Miners Association; and Gerald Schlief, Vice President of ATP
Oil and Gas Corporation. Schubert testified
that the surety industry conducts risk analysis in its bonding practices, and
that the current risk levels have overcome the incentive to extend bonds to
companies. He expanded by noting that current federal land regulations and environmental
practices have forced companies into long-term situations in which risk assessment
is difficult. He stated that bonds would become available again if the risks
were lessened. He suggested that bond obligation periods be reduced and bond
obligations become more limited in scope. Borell, in his testimony,
stated that the miners he represents have been unable to secure surety bonds
for their federal land operations and do not expect to have bonds available
in the near future. He outlined some recent attempts by the miners to acquire
bonds that, because of bond unavailability, have resulted in the inefficient
tying up of cash in financial guarantees. The only alternative, which is restricted
to mines that do not use chemicals in processing ore (i.e. placer and alluvial
mines), is state bond pools. He noted that this option is currently available
only in Alaska and Nevada. Schlief, testifying
on behalf of the National Ocean Industries Association,
touched on issues that were already discussed. He acknowledged the oil industry's
dependence on the surety bond industry and lamented the practice of putting
up cash as a guarantee.

In the question and answer period, Cubin asked Schief what impacts a tight
bonding market had on the oil industry. Schief replied that the companies stay
onsite longer to avoid beginning reclamation activities. He also restated the
damaging effects caused by companies having to use free cash in fulfillment
of guarantee requirements. Rep. Jay Inslee (D-WA) echoed Markey's comments by
saying the timing of this issue is "stunning." He expressed concern
that cleanup and reclamation responsibility may be shifted from the companies
to the taxpayers. He asked the panel if they sought the elimination of bonding
requirements for some developments. The panel unanimously asserted that the
elimination of bonding requirements was not their goal.

The third panel consisted of Chuck Jeannes, VP of Glamis
Gold Ltd.; Ken Done, Director of Treasury Services for Rio Tinto Services
Inc.; and Jim Kuipers from J. Kuipers Engineering. Jeannes testified
that his company has been unable to acquire surety bonds for its operations
despite its good environmental record and unlikeliness to default on reclamation
obligations. He stated that the scarcity of surety bonds, aside from hurting
existing companies, will discourage new companies from forming and ultimately
cause industry growth to wane. Dore's testimony,
which was on behalf of the National Mining Association,
complemented Jeannes. He said that operations by Rio Tinto Services have been
hindered by the lack of bonds. He stated that the situation is counterproductive
to Bush's National Energy Policy,
which calls for more development on federal lands. He assured the committee
that the mining industry is not trying to shirk its responsibility but rather
is trying to reclaim the security of the pre-surety industry collapse. The third
witness on the panel was Kuipers, who testified
on behalf of the Mineral Policy Center.
He argued that companies must not be allowed to lower standards or conduct mining
operations without a financial guarantee. He noted that some companies are asking
for taxpayer assistance and called for the Bush Administration to keep the current
regulations intact. Disagreeing with the other witnesses, he downplayed the
effects of the lack of surety bonding availability, saying that the companies
had time to prepare for this situation.

In the question and answer period for the third panel, Cubin asked the panel
if reclamation cost estimates have contributed to the bond scarcity issue. Jeannes
replied that the cost estimates are pretty reliable and stable and do not exacerbate
the problem. Other questions asked by the committee prompted the panel to elaborate
on their own particular bond procurement stories.

-DBV

House Resources Subcommittee on Energy
and Mineral Resources
Hearing on natural gas resources; the role of federal lands and the future
natural gas
supply and demand imbalance
July 16, 2002

The Bottom Line
On July 16th, the House
Resources Subcommittee on Energy and Mineral Resources held a hearing on
the status of natural gas resources in the US, focusing on the role of natural
gas-rich federal lands and the Outer Continental Shelf (OCS). At issue was the
growing natural gas supply and demand imbalance, and the resulting negative
effects on energy markets, such as energy price fluctuations and energy resource
uncertainty. As Chairwoman Barbara Cubin (R-WY) pointed out, the demand for
natural gas is expected to grow 60% by 2020, with over 90% of the proposed new
power-generation plants featuring natural gas. Supply, however, is not expected
to keep pace with demand under present conditions of natural gas availability.
Witnesses at the hearing, which included a high-ranking Department of the Interior
(DOI) official, consumer advocacy group spokesmen,
energy industry representatives, and oil and gas industry representatives, principally
called for the opening of the gas-rich federal lands in the Rocky Mountains,
Alaska, and the OCS to exploration and production. DOI noted that it has adopted
long-term plans to open these lands and short-term plans involving production
in the coalbed methane reserves on federal lands in the Rocky Mountains to boost
natural gas supply. Rep. Billy Tauzin (R-LA) brought up several issues, including
reducing the US dependence on foreign gas imports, reassessing royalty payments
for OCS states, and furthering research into possible gas energy sources like
methane hydrates.

Members Present

Barbara Cubin (R-WY)

Ron Kind (D-WI)

Thomas Tancredo (R-CO)

Billy Tauzin (R-LA)

Hearing Summary
Chairwoman Barbara Cubin (R-WY) opened the hearing by focusing on the expanding
natural gas supply and demand imbalance. She noted the growing need for natural
gas by citing an expected 60% increase in demand by 2020. She also stated that
over 90% of new electricity generation plants as currently proposed will use
natural gas. Supply, however, is not and will not keep pace with demand unless
changes are made to existing land policies, she said. She pointed to the gas-rich
Rocky Mountains, Alaska, and OCS as areas where "land withdrawals, development
moratoria and regulatory restrictions" have prohibited access to potential
new reserves. The country is headed for economic disaster, she warned, if the
natural gas supply and demand imbalance is not corrected by easing restrictions
to these areas.

Rep. Ron Kind (D-WI) followed Cubin by recognizing the natural
gas supply vs. demand concerns, but asked that caution be taken when dealing
with environmentally sensitive areas like the North Slope of Alaska.
Noting the US oil and gas dependence on foreign, often "hostile"
nations like Iraq, Rep. Billy Tauzin (R-LA) argued for lessening foreign oil
dependence by easing access restrictions to gas-rich areas in the US. He cautioned,
however, that domestic production must include environmental protection. As
an example he cited Louisiana, which supplies 19% of the nation's natural
gas but pays heavily for it in wetland loss. A balance must by struck between
reducing dependence on foreign oil and protecting environmentally valuable
lands, he concluded.

The only witness on the first panel was Rebecca Watson, Assistant Secretary
for Land and Minerals Management at the Department of the Interior (DOI).
Watson echoed the statements of Cubin in her testimony by pointing to the growing
imbalance between US energy consumption and domestic energy production. She
stated that having a diverse number of energy sources, from traditional fossil
fuels and nuclear power to alternative sources and renewables, is the best approach.
President Bush's National Energy
Policy endorses this approach, she noted, but total renewable energy production
will remain too low to be of any considerable help in the near future. Thus,
she argued, the US must rely on fossil fuels, such as natural gas, to carry
the energy burden. To achieve a natural gas supply and demand balance, DOI proposes
long- and short-term gas solutions focusing on the gas-rich Rocky Mountains
and OCS. Long-term plans include opening Bureau of Land Management (BLM)
lands to exploration and production and developing production in deep-water
of the Gulf of Mexico. These long-term plans are capital intensive, she stated,
and require time. Immediate needs can be met using DOI's short-term plans that
encourage production in the shallow-water Gulf of Mexico and development of
coalbed methane reserves on federal lands in the Rocky Mountains.

In the question and answer session for the first panel, Cubin asked Watson
if DOI is working to improve the image of fossil fuel production. Watson stated
that being a fossil fuel industry "cheerleader" is not DOI's job,
but it helps to supply facts when it can. Watson pointed to the USGS coalbed
methane factsheet as an example. Kind then asked Watson why renewable energy
programs account for only 5% of BLM's budget. She replied that DOI has an active
committee looking in to the status of the renewable energy program, and is awaiting
the results of the committee. Tauzin asked Watson a series of basic questions
to demonstrate the huge gap between land and OCS royalty payments (50% vs. zero).
He stated that OCS states, like Texas and Louisiana, suffer environmental damage
from resource production, but don't receive any payment in return, unlike states
with terrestrial resources. He then asked Watson if DOI could supply information
to him on methane (gas) hydrates. He suggested that methane hydrates are a possible
energy source which should be considered.

The second panel was comprised of Glenn R. Schleede, member
of advisory council for Consumer Alert;
Lee Gooch, Chairman of PCS Nitrogen, Process
Gas Consumers Group; and Eugene F. Peters, VP of Government Affairs, Electric
Power Supply Association. Schleede and Gooch, both representatives from
consumer groups, testified on the ramifications of the natural gas supply
and demand imbalance on consumers. They noted that energy prices have been
too volatile, causing economic harm to the public when prices are high and
both harm and disincentive to the natural gas industry when prices are low.
Both urged that the natural gas supply be increased, and argued for the easing
of restrictions to federal lands and OCS as a way of boosting supply. Schleede
further argued for the construction of more gas pipelines. Gooch felt it ironic
that natural gas has been labeled a relatively "clean" fuel source
while access to it has been simultaneously restricted by environmental laws.

Peters, like the other speakers, began by reminding the committee
of the growing imbalance between natural gas supply and demand. As a representative
from the electric power industry, he noted that over 90% of new power generation
plans call for natural gas. The natural gas industry, because of both its
good infrastructure and development of advanced technology, is technically
well equipped to supply enough gas, he said. Adequate supply, however, is
contingent upon having enough resources, and he consequently pushed for the
opening up of federal lands to gas production.

In an attempt to focus the discussion, Cubin asked the witnesses
in the second panel what exactly the government should do to alleviate the
natural gas supply and demand imbalance. Schleede answered that the government
should open public lands for exploration and production. Gooch added that
a balance must be struck between fossil fuel, nuclear and renewable energies
to create a stable energy economy. Peters concurred that supply must be increased
and that the government should help to provide stability for industry long-term
economic plans. Cubin followed by asking what the consequences are for not
increasing supply. Peters said that energy companies are flexible, but too
little supply or too much price fluctuation will cause the industry to eventually
abandon gas in favor of coal and nuclear energy.

The third panel included Mary Hutzler, Administrator for Energy
Information Administration; Matthew Simmons, President of Simmons
& Co. International; and Diemer True, Chairman of True
Oil Company, representing the Independent
Petroleum Association of America. The testimonies of Hutzler and Simmons
complimented each other. They both reiterated the previously voiced warning
that supply falls short of demand, creating harmful price volatility. Hutzler
indicated that the demand for natural gas is expected to rise 2% a year for
the next 20 years. She urged the importation of more gas by opening mothballed
Liquefied Natural Gas (LNG) port facilities created during the oil scare of
the 1970's. Simmons suggested that the long-term solutions of opening federal
lands and OCS to production, building more gas pipelines, and putting more
money into natural gas research and development should be implemented.

True painted a bleaker picture of the supply and demand problem
by noting that, because rates of natural gas depletion from proven reserves
are increasing, supply will actually decrease from current levels under the
present conditions, creating further imbalance. He said that federal lands
must be opened, and that moratoria on OCS leasing, like in California, must
be lifted. He also suggested adjusting the royalty payment system to encourage
OCS development. The uncertainty in royalty payments hurts the oil and gas
industry by fostering indecision, he noted.

In the question and answer session for the third panel, Cubin
asked Simmons what effects a 10% drop in natural gas supply would have on
the US economy. Simmons replied that the consequences would be serious economic
damage.

Cubin then closed the hearing by asking the panel if a national
energy monitoring and warning system that included natural gas would be useful.
The panel responded in the affirmative, but added that a comprehensive system
will take a lot of effort and resources to set up. They agreed that advance
knowledge of supply and demand fluctuations would help stabilize the energy
industry.

The Bottom Line
The House Committee on International Relations held a hearing on oil diplomacy
on June 20, 2002. The first panel presented the current goals of energy
policy in the US; the second group offered their concerns and suggestions
for improvement of US energy policy. There was widespread agreement
that dependency on OPEC oil must be reduced. While some felt diversifying
non-OPEC oil sources could easily fill US oil demands, others felt it was
essential that energy conservation play a role in future energy policy as
well. Increasing Corporate Average Fuel Economy (CAFE) standards and
encouraging technical innovations were two popular solutions for conserving
energy. Diversification of energy sources was also a solution voiced
-- specifically the increased use of nuclear, solar, and wind power.
There was a positive sentiment at this hearing that, if given the opportunity
and incentive, there was great hope that Americans would come up with new
technologies and methods of conserving energy that would be a win-win on
many fronts, including foreign policy, the US economy, competitiveness of
US products in the global market, the environment, employment, and quality
of life.

Members Present

Henry J. Hyde (R-IL), Chairman

Tom Lantos (D-CA), Ranking Member

Benjamin A. Gilman (R-NY)

Brad Sherman (D-CA)

Dana Rohrabacher (R-CA)

William Delahunt (D-MA)

Ed Royce (R-CA)

Earl Blumenauer (D-OR)

Steve Chabot (R-OH)

Shelley Berkley (D-NV)

Ron E. Paul (R-TX)

Adam Schiff (D-CA)

Nick Smith (R-MI)

Darrell Issa (R-CA)

Hearing Summary
Committee Chairman Henry Hyde (R-IL) opened the hearing by remarking on the
many ways in which the people of the US are dependent on energy -- for our
protection, cars, homes, transportation of goods, etc. He discussed
the current dependence on OPEC and the need to find alternative sources of
oil in order to decrease this dependence. Decreasing dependence on
foreign oil is attractive for several reasons: our oil supply is linked with
the political and economic security of the suppliers, in the event of interruption
of the world oil supply we need to have alternatives, and our current dependence
is viewed as competing with our national security. Hyde expressed uncertainty
that energy independence is possible or even advisable but suggest that greater
energy security is achievable. Ranking Democrat Tom Lantos (D-CA) echoed
much of what Hyde stated, adding that "until today we haven't examined how
our reliance on Middle Eastern oil hinders our fight against terrorism."
He noted that this area, which supplies much of our oil, contains people
very hostile to the US. He continued that it is distressed that US
foreign policy in the Middle East is complicated by our oil needs.
Lantos also added an additional dimention to the opening statements by bringing
up the issue of the need to scale back the US addiction for oil as opposed
to continuing down a road where lifestyles require us to be increasingly
dependent on it. He concluded that it is a "myth that we can drill
our way out of oil dependency."

Panel ISpencer Abraham (Secretary of Energy) and Alan Larson (Under
Secretary of State for Economic, Business, and Agricultural Affairs) were
the two witnesses on panel one. Both men discussed the basic fact that
two-thirds of proven world oil reserves are in the Middle East, while the
US has only 2%. This situation leads to the undeniable fact that the
US must increasingly rely on oil imports as the source of a significant portion
of its oil. Because of the necessary dependence on foreign oil, it
is imperative that the US constructs an energy security policy that ensures
US access to oil without having its foreign policy "held hostage by foreign
oil suppliers." Abraham and Larson also both suggested expanding our
international supply of energy to decrease dependence on the Middle East.
Canada, Mexico, Venezuela, Africa, Russia, and the Caspian Basin are all
promising areas of expansion, most of which are considered to be more reliable
and secure than current Middle Eastern sources. While calling for increased
priority on energy efficiency and conservation, their thoughts on our future
oil needs were best expressed by Larson: "Under current circumstances, significant
reduction of oil imports could not be achieved without severe effects on
our industries and a significant reduction in the buying power of American
families."

After the witnesses testified, the representatives asked a multitude of
questions covering all aspects of energy policy. Lantos asked Abraham
why the administration was opposed to raising CAFE standards and after some
banter Abraham answered that the administration has called for Congress to
end the moratorium placed on this topic by both the House and Senate so that
CAFE standards can be reexamined. Lantos also brought up the rolling
blackouts and brownouts in California which are now speculated to be due
to Enron creating artificial shortages. He asked if Abraham agreed
that this was what had happened and Abraham responded that yes, Enron could
have contributed to the energy shortage in California.

Rep. Ron Paul (R-TX) asked why the US doesn't move toward a "freer [oil]
market", as we have for TVs, VCRs, cars, etc., as opposed to national planning.
He felt that that the way it is now, with energy policy and foreign policy
so closely linked, a mistake in one arena is compacted in the other, therefore
why not let the marketplace take care of our energy needs? Abraham replied
that critics of the current energy plan feel that the plan is too free market
oriented, and stressed that in the absence of transparency and market systems
it will be very hard to make progress in energy policy.

Rep. Brad Sherman (D-CA) brought up the issue that while there will always
be enough "safe" oil, the real issue is how to pay for it. He hopes
that Canada and Mexico will agree with and set appropriate oil prices.
He stressed the importance of expanding our petroleum reserves. He
also expressed his feeling that the US took a "pitiful approach toward Europe
on the Iran oil issue."

Rep. Nick Smith (R-MI) asked what needs to be done in terms of developing
and moving ahead with more nuclear power plants. Abraham responded that
there are three issues that need to be addressed: what to do with the nuclear
waste, limiting the liability of the plants, and additional research on siting
and safety issues of nuclear power plants.

Rep. Earl Blumenauer (D-OR) discussed miles per gallon (MPG) standards
in Europe and the fact that even US cars exported to Europe will meet the
increasingly stringent MPG standards, proving that US car companies are capable
of producing more efficient cars. He heatedly asked Abraham, "why can't
we get a little urgency in leadership for improved fuel efficiency?"
Abraham responded that the administration is not sitting still. He offered
their support of the freedom car and hydrogen fuel cell research, as well
as their call to lift the moratorium on discussion of Corporate Average Fuel
Economy (CAFE) standards, as evidence of their taking the initiative to "transcend
the motor vehicle as we know it today."

Rep. Dana Rohrabacher (R-CA) voiced his concern that "radical environmentalism"
was aiming to restrict the standard of living of American people. He
proposed that the US increase its domestic supply and diversify its sources
so that the US is not so dependent on receiving oil from places in which
the people living there disagree with our way of life.

Rep. Shelley Berkley (D-NV) began by stating that all members and witnesses
seemed to be in agreement that the US needs to get away from its dependence
on foreign oil sources but some "part company with the administration on its
solution". She then used Yucca Mountain, the current hot topic for
her state of Nevada, as an example. While the administration looks
to Yucca Mountain as an adequate place to store nuclear waste, Berkley suggests
that it will create a target-rich environment that Al-Qaida is looking for.
How much, she asked, does the administration plan on expanding nuclear production,
and what do they plan to do with all of the waste it creates? She urged
Abraham to look to renewable energy. "Harness the sun! Harness
the wind!" Put the billions of dollars that are going to build the
"hole in the ground" at Yucca towards research and implementation of renewable
energy. Her questions were, for the most part, unanswered.

Rep. Darrell Issa (R-CA) then asked if it is the administration's position
to increase energy production, alternatives, and conservation, and whether
legislators have made international relations tougher? Does Congress
"tie your hands in diplomacy?" Larson responded that there is "no silver
bullet for energy security...[it is a] bipartisan national security issue."

Rep. Adam Schiff (D-CA) was the last congressman to speak during this question
and answer period. He stated his confidence in the technical ability
of the people of the US and his belief that they are missing an opportunity
to increase energy efficiency. Implementation of incentives for energy
efficiency, alternative energy, and new technologies would be a win-win situtation
in his eyes and the best thing for our nation's future. He feels the
US is at a point where this is technically doable, and it is a perfect time
for the new industries that would be created. He asked what role Congress
could play in cultivating alternative energy technologies and how much money
could be put towards doing that. Larson responded that the administration
budget this year contained the largest request for renewable energy funding
yet.

Panel II
Panel two consisted of three witnesses: Dr. Daniel Yergin, Chairman
of Cambridge Energy Research Associates; Frank Gaffney, Jr., Former
Assistant Secretary of Defense for International Security Policy and President
and CEO of the Center for Security Policy; and Stuart Eizenstat, Former
Deputy Secretary of the Treasury and Partner of Covington and Burling.

Yergin began his testimony by stating "energy security has recurrently
been an issue since the rise of industrial society more than a century ago"
and quoted Churchill's statement "safety and certainty in oil lie in variety
and variety alone," expressing that the same is still true today, decades
later. He pointed out that the US has had an "exaggerated confidence
about security...[including] energy security" until recently. However,
energy security has come to the forefront in policy making once again, and
Yergin attributes this to four factors: the rise in US oil imports, turmoil
in the Middle East, market pressures causing price increases, and the recent
reminder of US vulnerability. Energy is at the base of the US economy
and he stated that the practical question regarding energy is not how to
make substantial reductions in imports but how to stabilize them and ensure
that they will be available when needed. He offered several ideas as
to how this could be accomplished:

Conservation and new techonologies, particularly in the transportation
sector;

Stabilization/increase of domestic oil production and diversification
of suppliers;

Recognition that there is only one oil market, of which the US is
a part;

Allow the oil market to adjust on its own and minimize attempts to
control it; and

Maintain positive relationships with other oil importing nations and
good communication with exporting nations.

Gaffney presented his four concerns pertaining to national security and then
offered five suggestions for actions to be taken. His four concerns
were:

US overdependence on foreign oil, particularly in the Persian Gulf;

The bizarre situation the US has ended up in, where it is reliant
on Sadaam Hussein to provide a large portion of its oil;

China has a growing need for energy and its potential demand is "astounding".
This growing demand creates a formula for US conflict with China -- a conflict
which China is already anticipating; and

The US is currently waging a war against those whose terrorist activities
are made possible by US oil dollars.

His five suggestions were to:

Use the SPR petroleum reserve appropriately in order to keep oil prices
down and diversify supply;

Conserve energy where possible and because this is a time of war there
is the opportunity for the administration to ask US people to conserve, using
the argument that they don't want to empower the enemy;

Expand the potential of ethanol production and use agricultural products
beyond corn, even urban trash, as a substitute for oil;

More effectively explore nuclear power -- there needs to be a new
generation of safer technology; and

Pressure the Saudi government to end its support of terrorists.

Eizenstat echoed much of what had already been discussed. "No matter
how you look at it, the United States lacks the oil reserves to sustain its
own growing rate of oil consumption...An energy poicy that focuses only on
supply and does not account for ever-increasing consumption levels will doom
us to increased dependence on foreign oil, no matter what measures we may
take to increase domestic sources of energy." He feels that while the
Bush administration energy plan recognizes many of the energy problems the
US faces, it fails to recognize that any future change in energy policy must
be accompanied by a decrease in consumption. Our dependency on foreign
oil has caused energy shocks that have negative effects on our economy and
unemployment rates. The presence of US troops in Saudi Arabia and the
Persian Gulf are meant to protect the governments in those areas but has
lead to "resentment in the region ... we remain dependent on a region where
... the tide of anti-Americanism continues to rise." Reducing oil consumption
would enable us to decrease our dependence on "volatile foreign markets."
Eizenstat offered several solutions:

Increasing domestic oil production is not a realistic solution as
the US is already the world's largest producer despite our limited supply
--the resource has been tapped;

Increase CAFE standards; and

Put emphasis on technological advancements (i.e. hybrids) and "unleash
the great american ability to innovate" as cars that require less gas are
the wave of the future.

Following the testimony of the second panel, Hyde began the question and
answer period by complimenting the panel on the fact that all three men had
not only described the problem but also prescribed answers, something that
he has found rare and greatly appreciates. Rep. Benjamin Gilman (R-NY)
began by addressing two questions to the panel. First, he wanted their
thoughts on Canadians who claim to have more oil than the US needs.
Yergin said that Canada is, in fact, one of the largest US suppliers of oil,
and Canadian oil prices have been declining. Gaffney added, however,
that marginal costs of gettting oil from some Canadian areas are still higher
than getting it from other sources. The second question was what can
be done to break up the OPEC cartel. Gaffney suggested the use of SPR
and added that it is in the strategic interests of the US to decrease the
power of OPEC, especially considering where some of the money is going (terrorists).
Eizenstat agreed, emphasizing that this, once again, makes the case for diversifying
our oil sources as well as reducing our oil demand. He added that part
of the reason the Saudis have generally been very fair with oil pricing is
because they know if they become unreasonable in their prices they will be
tempting the US to diversify. Yergin and Eizenstat also brought up
the importance of research and development of renewable and alternative fuels
as another energy source.

Rep. William Delahunt (D-MA) said that in this world market in which we
are all a part, we speak of our "Canada friends" and "OPEC friends" but in
reality, who is OPEC? He suggests that in many respects it might as
well be called OPEC 'R US as it is really corporations that have the control
and are resistant to diversifying. He then asked what the witnesses
thought the future was for a new MPG standard, reminding them that the MPG
standard is lower now than it was in the mid-80s due to actions during the
Reagan administration followed by the CAFE moratorium. One witness
reponded that it was hard to say, he believed that it was an "honest political
process" but the power of the "big three" and the auto industry were quite
efficient at blunting it. Eizenstat then pointed out that in the long
run, raising the bar for MPG standards would help US auto companies.
The requirement to produce more fuel efficient cars would make US automakers
more competitive with German and Japanese cars. Increasing fuel efficiency
is "not some far out concept" but the direction that the world is going in.

Lantos asked if any of the witnesses had estimated the percent savings
of oil imports that could be gained by the implementation of higher CAFE standards.
Eizenstat responded that increasing CAFE standards to 40 MPG would save 125
billion gallons of gasoline by 2012, more than the total amount of oil we
import from Saudi Arabia. He added that Congress can't be serious about
decreasing oil dependence if they don't revamp these standards.